Will Your Home Cash Flow?
In last week’s blog we talked about How to Make a Strong Offer as we discussed the offer we recently made on what will be our new home. We really liked the house because it has so many great features, and living there will be wonderful. However, our decision was not based solely on how we would use the home. This was obviously very important, but we also considered the potential down the road to turn this property into an investment property.
To say the least, the property is quite unique in that it has two garages, two kitchens and a finished basement. As we were taking the tour the first time, I kept saying to myself “Wow, this is like two homes in one!”
The property was originally a 3-bedroom ranch with a basement. The previous owner added a Mother-in-law’s quarters to the home which essentially acts like a 1-bedroom apartment. This side of the home has its own entrance, separate utilities, and it would be very easy to separate it from the main portion of the house. Because of this, the property could be turned into a duplex in the future renting as a 1-bedroom apartment on one side, and a 3 bedroom house with a finished basement on the other side.
So, to determine the cash flow the property would generate for us down the line, we used our Rental Property Analyzer spreadsheet and computed the cash flow as shown below:
So, as you can see the property stands to generate almost $400 per month if we rent the property out down the road. The takeaway from this is that not only do we have a great place to live, but down the road we will have options. We can sell the property if the value goes up, or we can rent it out and collect the cash flow that it will generate. The bottom line is we won’t be stuck with the property like we found ourselves in with our current property.
If you’re in the market for purchasing a new home this is something you should definitely consider. As we talked about in our post Don’t Be an Accidental Landlord…Plan for It, many people these days are becoming unexpected landlords. If they had considered the cash flow analysis when purchasing their home, becoming an accidental landlord probably wouldn’t be as big of an issue.
Now I realize that not everyone will want to consider renting their home down the road and that is fine, but for us as real estate investors, we’re certainly leaving our options open by selecting a home to live in that will potentially be an investment property down the road.